I have been a scientist in the field of the earth and environmental sciences for 33 years, specializing in geologic disposal of nuclear waste, energy-related research, planetary surface processes, subsurface transport and environmental clean-up of heavy metals. I am a Trustee of the Herbert M. Parker Foundation and consult on strategic planning for the DOE, EPA/State environmental agencies, and industry including companies that own nuclear, hydro, wind farms, large solar arrays, coal and gas plants. I also consult for EPA/State environmental agencies and industry on clean-up of heavy metals from soil and water. For over 20 years I have been a member of Sierra Club, Greenpeace, the NRDC, the Environmental Defense Fund and many others, as well as professional societies including the America Nuclear Society, the American Chemical Society and the American Association of Petroleum Geologists.

The Small Business Administration Decides to Hurt Small Businesses

Seal of the U.S. government's Small Business Administration. (Photo credit: Wikipedia)

Although a rose by any other name may smell just as sweet, the new way of how we define government support to small businesses may not pass the smell test.

For some strange and unknown reason, the Small Business Administration has changed how it defines government support of small businesses, which will inadvertently destroy many small businesses, especially those supported through the Department of Energy.

As with most BureauSpeak, this may a bit tough to follow – the SBA decided that government agencies need to increase their support to small businesses to 10% of their budget. Sounds good. Sounds like an increase. But it’s not.

To get credit for supporting small businesses, government agencies like DOE and DoD will be forced to make that support be through prime contracts. Prime. As in Directly-To-The-Government. Not through subcontracts from an existing Prime. In fact, the agency will get no credit if the contract is a sub to an existing Prime, like most are with DOE.

Although I really support the SBA and think they do a wonderful job in general, the brainiac who came up with this idea knows nothing about the DOE. It is EXTREMELY difficult for a small business to be a DOE prime contractor.

It might work for the Department of Agriculture, but once the word plutonium enters a contract, things get a little weird.

And as you might expect, it gets a lot more expensive with a lot more paperwork. Throw in the Price-Anderson Act, the huge liability of working with radiation, beryllium and asbestos, the extensive training requirements, safety issues, QA audit requirements, and the host of accountants, lawyers and HR people needed to be a prime to DOE, and you can imagine that few small businesses could even submit a proposal to be a prime contractor to the Department of Energy.

Everyone in the field knows this. That’s why most DOE support to small businesses is as subcontracts from an existing large Prime like Bechtel or Lockheed Martin – you know, the big guys that already have the legions of lawyers and accountants needed. Once the big guys have done all the work setting things up, it’s much easier to get the actual small businesses on board, very much like supporting an intern or an apprentice.

And the Primes get a lot of credit for this, as they should, both with the government and with the local communities that are the real beneficiaries of this support. Often, the prime contracts include small business set-asides, or goals, that are tied to award fees. This is a time-proven system that works very very well.

Seal of the United States Department of Energy. (Photo credit: Wikipedia)

DOE has done this for small businesses so capably that at the Hanford Site in Washington State, DOE provides over $500 million in subcontracts to hundreds of actual small businesses through its Primes, over 40% of DOE’s budget at this site. Amazingly higher than any other government agency. The innovation, the breakthroughs, the educational benefits, all the things that thrive when real small businesses are supported by the government, have all thrived here because of this support.

However, only a fraction is through prime contracts to small businesses, so the SBA is unhappy, and most of this support won’t count as support anymore. In fact, DOE’s last SBA score card was an F (DOE gets an F), even though the previous year they got a B for just about the same support (DOE gets a B).

The DOE has tried to explain this to the SBA, tried to push back, and has held off the most egregious harm as long as it could. But word came down recently from above that the DOE better tow this SBA line or else! (Not sure how SBA could have this much power over DOE, but hey, I don’t have the Org Chart.)

So only the biggest small businesses will be able to compete as a prime to DOE. Restructuring things to meet the new SBA rules will cut DOE support to small businesses even more (it takes a lot more money and time to put a prime contract in place and monitor it directly and that money will have to come from DOE’s small business allocation itself). DOE will transfer most of this support from actual small businesses to only the biggest small businesses, e.g., those with almost 500 employees or almost $30 million/yr, depending upon which NAICS code is used.

Not really the Mom&Pop league.

And that’s the unforeseen collateral damage of this policy. Real small businesses will be driven out wholesale, Mom&Pop companies will simply fold, especially those in the cities and towns where the DOE sites exist, that need them the most, and that grew up along with the DOE mission. Because SBA’s new rules also don’t care whether these businesses are local or not.

Small business support at this site with drop from about $500 million to maybe $200 to $300 million. There is an easy administrative fix to this problem. Subcontract dollars are as well-tracked as direct support. Just give the agencies credit for getting the support to small businesses regardless of the specific contractual vehicle.

I know someone sold the White House on this plan because it sounded like the government would increase support to small businesses. But it only sounds good to those who don’t know this song.

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This is likely intended to look like an error or oversight but in fact it is probably more of Obama’s intention to bankrupt America. Control is all that he wants, total control of all you are allowed to do, say, or own.

I think it more likely it is below his radar and he is depending upon someone in the SBA to keep him abreast. And they don’t actually understand the ramifications of this in the DOE world, which I admit, you have to know firsthand.

Is it possible that this is an effort by large businesses to make it easier to consume the creative small businesses and bring their talent into the larger company?

Many people blame the politicians, but our system has been steadily skewing toward money as the real source of power and influence, not the interests of actual voters. Elections are wildly expensive and the ads work to discourage participation; the President is not immune to the way that donors come along afterwards to collect their pound of flesh in the form of rules that benefit their bottom line.

Businesses know that the individual in the White House is guaranteed to be gone in 8 years – maximum and 4 years when he has already served 4 years. They also know that rules, once enacted, can last a whole lot longer.

Jim upon further study you will learn that large Chinese corporations can now qualify under our U.S. SBA Technology programs. Under Stephen Chu there is a concerted effort to move all jos, technology and capital to China. Chu is playing for the other team on a number of issues. I am not sure why Congress and the Administration do not instigate his actions. He should be in a cell next to Jonathan Pollard.

I think this is an honest case of good intentions gone awry. It might seem on the surface that direct contracts from the government to small business would appear as more direct support, but for DOE that is not the case as discussed. And I know that Secretary Chu has tried to explain the special issues involved in DOE. The question is who has the final word and who is it that can’t admit an honest mistake and make a minor administrative change that creates a win-win for everyone. I truly believe that the key players do not understand the actual problem nor how easy it would be to fix.

Yes, the effects are much larger than one would think from just the idea of raising the direct small business prime contracts from a few percent to 10% of DOE’s budget. Take two actual small businesses at the DOE Hanford site as an example. One has a subcontract of about $14 million that employs about 80 people . The other is a small business prime contractor directly to DOE with a contract of about $12 million dollars that employs about 70 people. Each has other contracts with other entities that still keep them well under the 500 people or $30 million limits depending upon the NAICS codes. In the past, DOE received credit for the combined $26 million in small business support. Under the new SBA rules, they only receive $12 million. One plan is to take the scope from the first and give it to the second so the total $26 million would be through the small business prime which would be be recognized by the SBA as true support. The first business would be out of luck, have to close their labs in WA State and downsize dramatically. Since most of DOE’s small business support is through subcontracts that now get no credit, the trend will be in this direction. Alternatively, the contract to the first company could be rebid as a prime which would cost DOE about $2 million more and take an additional year. What I did not discuss in this post is the effect on the actual work during this restructuring, like radiological clean-up or environmental monitoring, that would be slowed or stopped. This is a dramatic issue for DOE that does not affect most other federal agencies.